Bollinger Bands Squeeze: What Is It and How to Trade It?

Bollinger Bands® is a great indicator. There are thousands of traders around the world who use and trust this indicator religiously. I am one of the Bollinger Bands fans because it works. If you are new to this indicator and you don’t know the basics of using it, we already have some good articles on it on this website that I recommend you to read them first and then come back to this page to learn about Bollinger Bands Squeeze or BB Squeeze which is an important trading strategy: How to Use Bollinger Bands in Forex and Stock Trading

Bollinger Bands Squeeze is a great chart pattern that enables you to locate strong and profitable trade setups. When the market becomes too slow and there is a low volatility, the price moves sideways and the Bollinger upper and lower bands become so close to each other. This is called “Bollinger Bands Squeeze”. You can see it on all time frames very frequently, specially the shorter ones like 15min.

Sometimes Bollinger Bands Squeeze is continued for several candlesticks, and sometimes it is only for a few to few candlesticks. It really doesn’t matter how many candlesticks are inside the squeezed Bollinger Bands. Something that matters is that such a market is not going to remain calm and quiet forever, and this low volatility will be followed by a strong movement finally. This strong movement can be so profitable for the traders if they enter on time.

Bollinger Band Squeeze trade setups are really a great, because the movement that happens after the squeeze is usually too strong, and above all, we can enter with a very tight stop loss and wide target. In many cases we can take a 1:10 position which is great. In other words, Bollinger Bands Squeeze trade setups are really profitable and have a great risk to reward (R/R) ratio because they show us the beginning of the strong movements and hopefully strong and continued trends. On the other hand, it is very easy to locate Bollinger Bands Squeeze trade setups. You just need to be on time enough to enter at the right time.

Now I am going to show you a few of the Bollinger Bands Squeeze trade setups and the way you could take them.

The blow chart shows a BB Squeeze example formed on EUR/USD 15min chart. You can see these kinds of patterns on the 5min and 15min charts a lot, and BB Squeeze is one of the most important strategies that many of the day traders use to trade. The below screenshot shows you how profitable these trade setups are.

As you see the Bollinger upper and lower bands became so close to each other for a few candlesticks (the red arrows). Candlestick #1 is the center of this Bollinger Bands Squeeze which is a very short form of BB Squeeze.

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How to Trade the Bollinger Bands Squeeze

When should we enter the market when Bollinger Bands Squeeze forms on the charts?

We should take a position as soon as the market gets out of the range and starts moving strongly again. As you see on the below chart, the price has been moving sideways for several candlesticks before candlestick #1. Do you know what tells you that the market has decided to get out of the range and wants to start moving strongly again? The answer is in Bollinger Bands itself. It tells you when to enter:

You can take a position as soon as the body of one of the candlesticks touches either the Bollinger upper or lower band. If it touches the upper band, it means the market wants to break above the range and go up. If it touches the lower band, it means the market wants to break below the range and go down. The candlestick’s body should touch the upper or lower band and should close while it is still touching the band. I mean touching by the candlestick shadow is not enough. The body should somehow break out of the band. This is something that we call Bollinger Bands Squeeze breakout.

As you see on the below screenshot, the candlestick #2 body has barely touched the upper band. We could go long at the close of this candlestick, however, as the body has not touched the upper band strongly, we wait for another candlestick to form. The candlestick #3 body has strongly touched the upper band. It does not have to be that strong and if I wanted to trade this Bollinger Bands Squeeze trade setup, I would go long at the close of the candlestick #2 or while the candlestick #3 was forming. The entry would be somewhere around the 1.36194 level. I would place the stop loss at the candlestick #2 low price or a little below it. It would be a 2 to 5 pips stop loss. The market went up for 50 pips after the Bollinger Bands Squeeze breakout. That is why I told you that Bollinger Bands Squeeze setups are really profitable and have a great risk/reward ratio.

The below chart shows two examples of Bollinger Bands Squeeze that are longer than the above example. I mean the market has been moving sideways for a longer time.

The one at the left side of the chart has something more than an ordinary trade for you to learn. As you see, after such a long time of moving sideways and inside the squeezed Bollinger Bands, candlestick #1 body touches the upper band. According to what I told you above, we would go long at the close of this candlestick while the stop loss had to be below the low price of the candlestick. However, as you see, it would not work and the market went down and triggered the stop loss. I brought up this example here to tell that even Bollinger Bands squeeze patterns sometimes don’t work. That is why we must always have a reasonable stop loss there to protect our money.

Although our first entry did not work and we lost about 12 pips, the market goes down and candlestick #3 touches the lower band while the Bollinger Bands squeeze is still there and the upper and lower bands are still moving parallel to each other. So we could go short at the close of candlestick #3. As #3 is a long candlestick, the stop loss did not have to be at its open price and it could be set at the middle of the candlestick (a 9 pips stop loss). A 90 pips target (1:10 position) could be easily triggered because the price goes down for 100 pips after the candlestick #3 close (Please note that these are all examples and are not real market reports.)

The second Bollinger Bands squeeze at the right side of the chart is the example of a BB Squeeze that we should not take. The reason is clear. The candlestick that its body has touched and broken out of Bollinger lower band (candlestick #4) is a too long candlestick, and usually the price turns around when such candlesticks form on the charts. We need normal candlesticks to trade. Huge and exotic candlesticks are usually troublesome.

The last thing I have to emphasize about Bollinger Bands Squeeze is that sometimes the market becomes too slow, but it is not moving sideways completely and the candlesticks row make an angle with the horizontal line while the Bollinger Bands Squeeze forms on the chart too. You’d better to avoid this kind of Bollinger Bands Squeeze setups and wait for the ones that the candlesticks are moving completely horizontal, like the above three examples that I showed you.

No trading strategy, including Bollinger Bands Squeeze (BB squeeze) is a Holy Grail and you can wipe out your account with any trading strategy if you don’t take a proper risk and you don’t limit your risk through having a reasonable stop loss and exit strategy. So be careful and always trade like a professional trader who takes care of his capital properly.

I am a silent reader of your posts & really like them. I am an Indian Day-Trader & mostly trade in Indian Index (Nifty). Like you, i am also a fan of Bollinger Bands.
I have my own blog & was thinking, can you publish my Bollinger articles also. People can use them & may improve their trading. There are 4-5 articles on it & the system i use, can be used for other markets also. My articles are at – http://www.tradewithdeven.blogspot.sg/search/label/Bollinger%20Bands

As you see, now there is a link to your blog. People can follow it and read your articles. Publishing the articles that you have already published on your blog is not a good idea because it will be known as duplicated content. However, you can write a unique article that is not published on the web yet, send it to us and we will be more than happy to publish it on LuckScout.

Hi Chris,
Pls you said some times when the market becomes too slow and its not moving side ways.and the candle row make an angle with horizontal line while B B squeez forms on the. Cwrt too, that we should avoid such chart…could you kindly illustrate such chart to me , this is because am a newbie in i might not be able to recognize such chart if i sees it.
THANKS

Do you still take the 2% risk with these kind of trade setups? Because, in these setups the stop loss are tight and to risk 2% of an account, the lot size can get quite big and we could be reaching margin-call. Or, will you be risking lesser with these trade setups?

Hi Chris, I know this is older article, but If I have time I read your articles again and again 😉
I would like to ask you one thing, I noticed that sometimes when BB high or low are sharply and cross candles body, and candle have small or no shadows, often it is start of trend.
ample penultimate candle on first picture, or something like that.
Probably it is no good setup for us, but I noticed it 😀

Great system. Why didn’t you tell me to look for those breakouts on the 8 and 4 hour charts on days when there are no daily chart breakouts to trade? It’s less money, but better than most alternatives.

Can I check with u guys if I wanna trade with your double BB and candlesticks strategies, can I be a long term profitable trader if my risk reward ratio is 1:1? 1:1 will allow me to exit or close the trade within a day. 1:2 or higher might mean that the trade will have to be running 2 days or more. Please correct me if I’m wrong. Thank you!

Do I include 5 pips plus spread to the previous candlestick’s high as my stop loss if I am to place a sell order? In the past I always use consolidation area or a fixed value as my stop loss. Thank you very much!

Hi Chris, this morning I entered cadjpy when the 3rd candlestick closed below the BB on the daily chart. When I came back to the trade 8 hours later, I realised that the candlestick went bullish instead. I checked weekly chart and found that the last candlestick had actually penetrated top BB and was still a strong uptrend. From my past experiences, I usually lose money if I go against such a trend.

This is the first time I’m trading on daily chart and also my first time trading this currency pair. I usually trade on eurjpy and eurusd, but since I will be learning your trading strategies, I will learn to trade the pairs you mention 😉

Hi Chris, my cadjpy trade just hit stop loss a while ago. checked weekly and monthly chart they are still on a bullish trend. does it mean that i have to check weekly and monthly chart too before entering a trade when daily trade setup is on? Please advise. Thanks!

When the trade setup is not too strong by itself, then we check the longer time frames to see how they look. When they are against the trade setup, we avoid taking any positions. The solution is that we only take the too strong setups. If so, we will not have to check any other time frame, for example when we locate a setup on the daily chart.

Hi Chris
You told me to stick with the TF day and week. To be honest, I hardly see Bollinger band squeeze in TF day nor week. Mostly it will appear in smaller TF like 15 min up to 4 hours. Does it mean i can trade this system with 15 min chart?

I have the same question in mind as Parson’s. Since you mentioned that BB squeeze rarely forms on daily and longer timeframes, would you recommend trading BB squeeze in smaller timeframes such as H4, H1, M30, etc., or are they only for illustrative/educational purpose? I see your examples are M15 and H1.

You are right. If you want to maximize your profit to 1:10, you will lose in many trades.

I take two positions when a too strong trade setup forms. Both positions have the same stop loss, but one of them has a 5 x SL target and the other one has no target. When the first position hits the target, I move the second position’s stop loss to breakeven and hold it as long as signs of exhaustion have not appeared yet, or a strong reversal trade setup has not formed. Using this method, I sometimes maximize my profit even over 1:10. But it takes time to locate such a setup.

One of the most exiting things for me is reading a new article about bollinger bands or candle sticks.So nice to read something new on bollinger bands.psychology of the candle sticks and movements on the chart becomes more clear after reading such an important article.Thanks a lot.

Very profitable and exciting system when used properly! Thanks for teaching us the right way the first time brother Chris. You’re appreciated and a role model of role models setting a bar so high many will have to face their moral state of online business affairs. Your work here will be a catalyst to a new error in the home based business arena tipping the scales to the average making many wealthy along the way thanks for allowing me to be apart of such a grand attempt. There is no doubt we will succeed!